Country Garden backs out of land deal


  • Business
  • Thursday, 05 Nov 2015

Cautious stance: A visitor takes pictures of a model of Beijing’s downtown at the Beijing Planning Exhibition Hall. Chinese developers are becoming more cautious in buying land in first-tier cities such as Beijing, which have led a nationwide recovery in sales this year, as escalating land costs are threatening to erode their profit margins. — Reuters

SHANGHAI: Chinese developer Country Garden Holdings Co has decided not to buy two plots of land it won at a Beijing auction after the final prices exceeded its budget, in a sign that homebuilders are under pressure from surging land costs.

Country Garden would not buy the two sites in Beijing’s suburban Fengtai district it won in the auction with co-bidding developer China Jinmao Holdings Group Ltd on Oct 21, it said in an e-mailed reply to Bloomberg queries.

The final price for one site was 28,900 yuan (US$4,562) per sq m and the price was 29,700 yuan for the other, exceeding Country Garden’s agreed ceiling of 26,000 yuan and 25,000 yuan, respectively, according to the company. Jinmao was bidding at the auction.

Chinese developers are becoming more cautious in buying land in first-tier cities such as Beijing, which have led a nationwide recovery in sales this year, as escalating land costs are threatening to erode their profit margins.

Average land prices for residential use in Beijing soared 45% in the third quarter, compared with the previous three months, according to a report by SouFun Holdings Ltd, echoing surging prices for commercial and office use.

Land prices have also jumped in Shanghai, China’s financial hub, pushing the municipal government to halt six land auctions last month.

“Land prices have been soaring in the first-tier cities like Beijing, accounting for 70% to 80% of the estimated housing prices,” said David Hong, Hong Kong-based director of China Real Estate Information Corp.

“It would be hard for private homebuilders like Country Garden, as they are not armed with cheap enough cash.”

City authorities can levy a fine on the developers for backing out of the deal, although it wasn’t immediately clear who would be responsible for what share of penalties. — Bloomberg

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